SYDNEY, Aug 21 Asian shares came under pressure
on Thursday as a disappointing survey on Chinese manufacturing
stoked concerns about the regional giant and overshadowed better
news from Japan.

The HSBC/Markit Flash China Manufacturing Purchasing
Managers' Index (PMI) fell to 50.3 in August from July's
18-month high of 51.7, badly missing a Reuters forecast of 51.5.

Investors reacted by selling the Australian dollar,
often a used as a liquid proxy for bets on China, while shares
in Shanghai dropped 0.5 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan
skidded 0.6 percent, with indices in South Korea
and Taiwan in the red.

Yet Japanese shares managed to buck the trend aided by a
survey showing manufacturing activity accelerated in August as
export and domestic demand increased.

The Markit/JMMA flash Japan PMI jumped to a seasonally
adjusted 52.4, up from 50.5 in July and the highest reading
since March just before a hike in taxes sent demand cratering.

Tokyo's Topix was still up 0.8 percent, while the
Nikkei gained 0.9 percent. They had started firmly after
the yen took a spill against the U.S. dollar, in a positive sign
for Japanese exports and corporate earnings.

The dollar was up across the board as investors detected a
hawkish turn in policy discussions at the Federal Reserve.

Yields on short-term U.S. debt had leapt by the most since
March as minutes of the Fed's last meeting led markets to price
in a greater risk of an earlier hike in interest rates.

The story was much the same in Britain where bond yields
jumped on news that two Bank of England policymakers
unexpectedly broke rank with colleagues and voted for higher
interest rates earlier this month.

The U.S. dollar index, which measures the greenback against
a basket of six major currencies, climbed further to 82.334
after breaking decisively higher overnight.

The dollar also notched up a four-month peak against the yen
at 103.96, while the euro crumbled to an
11-1/2-month trough of $1.3243.

WHEN HAWKS CRY

On Wall Street, the Dow had ended Wednesday up 0.35
percent, while the S&P 500 gained 0.25 percent and the
Nasdaq dipped 0.02 percent.

Equity investors seemed reassured that the vast majority of
the Fed's voting committee wanted to keep a pledge that rates
would stay near zero for a considerable time after it stops
buying assets, which is expected in October.

But the minutes also revealed a more active debate about
whether an earlier hike in rates might be needed.

"Our takeaway is that the median FOMC participant has been
surprised by how quickly the unemployment rate has come down and
is also less convinced there is as much slack in the labor
market as previously believed," said Michelle Girard, chief
economist at RBS.

"So the hawks are getting restless and the centrists seem to
be less dug-in on some of their previously held views."

With cries of the hawks ringing in their ears, bond
investors chose to punish Treasuries. Shorter-dated debt was hit
hardest as it is typically more sensitive to expectations on
changes in the official Fed funds rate.

Fed funds futures fell as the market brought forward the
timing of a first hike. Futures for June next year <0#FF:> now
imply a rate of 27 basis points, compared to 23 basis points
early in the week.

The current target for Fed funds is a range of zero to 25
basis points and it effectively trades at just 8 basis points.

Across the Atlantic, the risk of an early move by the BoE
lifted yields on British two-year debt 4 basis points to 0.74
percent.

That saw sterling hold up fairly well against the broadly
firmer greenback and actually rise on the euro, which plumbed a
one-week low at 79.68 pence.

In commodity markets, the rise in the dollar knocked gold
down to $1,289.26 an ounce, and further away from last
week's peak of $1,319.10.

Oil ran into renewed selling after a modest bounce on
Wednesday. Brent crude for delivery in October was 22
cents easier at $102.06 a barrel, while U.S. crude lost 2
cents to $93.43.
(Editing by Shri Navaratnam and Eric Meijer)

Next In Market News

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